The Three Month Rule

The banks requiring 100% (or more) debt coverage from presales has seen an influx of traditional bank customers approaching private lenders to fund their projects.

I find it quite perplexing that many of these former bank customers are fixated on interest rate, rather than the real cost of finance.

Read my article here on The Real Cost of Construction Finance.

Private lenders, like GPS, generally require no presales or a substantially reduced level of presales from those required by the banks. They also lend at higher LVRs. This represents a considerable saving in the overall project cost.

In the current market where presales (if they can be achieved) are costing 8% plus, with half payable upon the contract becoming unconditional, the GPS loan product is very competitive.

4% at the front end of a project and utilising a 60% usage rate equates to a 7% hike in the effective interest rate.

Loan to value ratios (LVRs) and total development costs (TDCs) for bank construction lending are currently quite low and are likely to get even lower. This increases the amount of equity required for a project and further increases the real cost of funding from banks.

The value of certainty and service should also be factored into the price of finance. Funds from GPS are sourced exclusively from our loyal Australian investor base. Reliability in the funding, and timely payments to builders, keeps your project on track. If your lender does not meet regular progress draws, your project will stall, costing you time and money.

Borrowing from GPS can take three months off the life of a project.

By applying the three month rule, and saving developers both time and money, then GPS is competitive in overall cost to obtaining finance from a bank.

Richard Woodhead – Managing Director